International Seaways(INSW) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company reported a significant downturn in Q1 2021, with a net loss of $13.4 million compared to a net income of $33.0 million in Q1 2020, primarily driven by a 63% decrease in shipping revenues Condensed Consolidated Financial Statements The financial statements for Q1 2021 reflect a significant decline in performance, with sharp falls in shipping revenues, a net loss, negative operating cash flow, and a slight contraction in the balance sheet Condensed Consolidated Statement of Operations Highlights (Q1 2021 vs Q1 2020) | Metric | Q1 2021 ($ thousands) | Q1 2020 ($ thousands) | | :--- | :--- | :--- | | Shipping Revenues | $46,756 | $125,337 | | (Loss)/income from vessel operations | $(11,845) | $53,349 | | Net (loss)/income | $(13,365) | $33,019 | | Diluted net (loss)/income per share | $(0.48) | $1.12 | Condensed Consolidated Balance Sheet Highlights (as of Mar 31, 2021 vs Dec 31, 2020) | Metric | Mar 31, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $156,178 | $199,390 | | Total Assets | $1,552,052 | $1,586,539 | | Total Liabilities | $584,289 | $614,497 | | Total Equity | $967,763 | $972,042 | Condensed Consolidated Statement of Cash Flows Highlights (Q1 2021 vs Q1 2020) | Metric | Q1 2021 ($ thousands) | Q1 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(21,006) | $38,318 | | Net cash used in investing activities | $(3,417) | $(15,157) | | Net cash used in financing activities | $(18,853) | $(63,077) | | Net decrease in cash, cash equivalents and restricted cash | $(43,276) | $(39,916) | Notes to Condensed Consolidated Financial Statements The notes detail significant corporate actions including a proposed merger with Diamond S Shipping, commitments for new dual-fuel VLCCs, debt structure, covenant compliance, and shareholder activities - On March 30, 2021, INSW entered into a merger agreement with Diamond S Shipping Inc. The transaction is expected to close in Q3 2021 and will be treated as an asset acquisition. INSW shareholders will own approximately 55.75% of the combined company[19][20][25] - The company entered into agreements to construct three dual-fuel LNG VLCCs for approximately $290 million, with delivery scheduled for Q1 2023. These vessels will be employed on seven-year time charters with Shell[42] - As of March 31, 2021, the company was in compliance with all debt covenants. However, it warns that a forecasted decline in TCE rates could cause a breach of the Interest Coverage Ratio covenant by the end of Q3 2021[59][66] - The Board of Directors declared a regular quarterly cash dividend of $0.06 per share, totaling $1.7 million, which was paid in March 2021[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant Q1 2021 performance decline to a weak tanker market, impacting both Crude and Product carrier segments, while pursuing strategic growth and maintaining liquidity despite potential debt covenant risks - The company's TCE revenues are predominantly from the spot market, which constituted 69% of total TCE revenues in Q1 2021, a decrease from 93% in Q1 2020, reflecting a strategy to lock in some vessels on time charters[115] - Crude tanker rates remained under pressure in Q1 2021, with all tanker types operating at or below industry average cash breakeven levels on benchmark routes[125] EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2021 ($ thousands) | Q1 2020 ($ thousands) | | :--- | :--- | :--- | | Net (loss)/income | $(13,365) | $33,019 | | EBITDA | $10,669 | $63,295 | | Adjusted EBITDA | $10,680 | $74,216 | Results of Operations by Segment Both operating segments experienced significant declines in TCE revenue and average daily rates in Q1 2021 due to the weak market, with Crude Tankers falling 60% and Product Carriers 70% Segment TCE Revenue Performance ($ thousands) | Segment | Q1 2021 TCE Revenue | Q1 2020 TCE Revenue | % Change | | :--- | :--- | :--- | :--- | | Crude Tankers | $35,950 | $88,854 | -60% | | Product Carriers | $9,219 | $30,877 | -70% | Segment Average Daily TCE Rate | Segment | Q1 2021 ($/day) | Q1 2020 ($/day) | | :--- | :--- | :--- | | Crude Tankers | $18,258 | $43,663 | | Product Carriers | $10,720 | $26,873 | Liquidity and Capital Resources As of March 31, 2021, the company maintained $212.4 million in liquidity, committed to newbuild VLCCs, paid dividends, and warned of a potential debt covenant breach in Q3 2021 - Total liquidity as of March 31, 2021 was $212.4 million, comprised of $172.4 million of cash (including $16.2 million restricted) and $40.0 million of undrawn revolver capacity[164] - The company has commitments of approximately $290 million for three new dual-fuel LNG VLCCs, which will be funded through a combination of long-term financing (commitment for ~85% secured) and available liquidity[170] - The company warns that the forecasted decline in TCE rates could cause a breach of the Interest Coverage Ratio covenant under its main credit facilities at the end of Q3 2021[176] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[189] - No material changes in internal control over financial reporting occurred during the first quarter of 2021[190] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is party to various legal suits arising in the ordinary course of business, which management deems not material to its financial position and are largely covered by insurance - The company is involved in various lawsuits in the ordinary course of business, which management does not consider to be material to its financial position, results, or cash flows[103][192] Item 1A. Risk Factors The company directs investors to review the comprehensive risk factors detailed in its 2020 Annual Report on Form 10-K and the S-4 registration statement related to the proposed Diamond S Shipping merger - For a detailed discussion of risks, the report refers to the company's 2020 Form 10-K and the Form S-4 registration statement related to the Diamond S merger[194] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2021, the company did not repurchase shares under its stock repurchase program, with the only repurchases being shares withheld from management for tax liabilities upon restricted stock unit vesting - No shares were acquired under the company's stock repurchase program during Q1 2021[81][195] - The company repurchased 22,830 shares from management members to cover withholding taxes related to the vesting of restricted stock units[80]